‘Quarantine 15’ and Other Helpful Items
As we are living through these unprecedented times, I’m trying to hold some gratitude in my heart for how much our recordkeeping skills are needed right now. Of course, some (many?) days I am really thinking, for goodness sake, when is this going to end!? And how can one woman eat that many snacks? One of our Fine Point team members coined the phrase, “the Quarantine 15” and I tell ya, it’s a real thing. Ok, back to business!
With the multiple small business funding options and payroll tax credits out there, and the continuing guidance and clarifications being issued, it’s a full-time job just keeping track of everything. I have a few helpful items for you to review this month, based on the most common questions we are getting from our customers.
CEO, Fine Point Consulting
Make the Most of Your PPP Funding
As you can imagine, we’ve had our heads down the last couple of weeks, helping customers calculate and apply for the PPP funds, as well as working through alternatives with them. So…what’s next?
Get a plan in place right now for how you intend to use those funds. Your current primary goal should be to maximize the loan forgiveness amount. Once the SBA approves you, your bank has 10 days to fund the loan. And when you do receive those funds, the 8-week time period stipulated in the loan details officially begins.
You will need to be prepared with documentation that shows how you are spending those funds during that 8-week period. I recommend you create a separate balance sheet account to keep track of the PPP loan funds and how they are spent. You don’t need a separate physical bank account if you track your funds properly in your accounting system. Businesses are subject to criminal penalties for misrepresenting either the spending or use of the loan, so take this seriously.
To qualify for loan forgiveness, you must use at least 75% of the funds for payroll costs, with the other 25% of the funds used for rent, interest payments on mortgages, and utilities. You also need to pay attention to your FTE compared to your base period. Review compensation for employees to ensure that you don’t reduce their pay beyond 25% of the base amount. Doing so will reduce eligibility for loan forgiveness.
Payments for paid leave benefits under the Families First Coronavirus Response Act are NOT an allowable use of your PPP funds. Again, solid recordkeeping and using your accounting tools properly will help you keep track of these items with ease.
You should get guidance from your individual bank on what documentation they will require from you, so you are prepared.
Other options for maximizing forgiveness:
- Ask your banker to time the origination of the loan to help you best maximize your ability to spend funds
- Adjust payroll dates if you can, to maximize payments during the 8-week period
- Consider paying bonuses to employees who have demonstrated superior job performance during the crisis (but remember compensation above $100k does not count toward loan forgiveness)
- Make catch-up payroll payments to any employees whose compensation was reduced as a result of the crisis
- Make early payments on rent, mortgage interest, or utilities (up to 25% of your loan)
As always, monitor the SBA website for any updates on loan forgiveness and any additional clarification of the rules.